Debt Consolidation Versus Credit Card Payment – How to Decide
When you are deep into credit card debt, it is like you are carrying the weight of the world on your shoulders. You struggle each month just to pay your regular bills like rent/mortgage, gas, and food bills – let alone having to keep up your credit card payments.
And, the deeper you get into debt, the harder it is to get yourself out of it. Of course, you want to avoid something serious like bankruptcy, and you want to maintain at least a decent credit score. So, NOT paying off your debt is not an option.
One choice that savvy people look at when deciding how best to get out of debt is that of comparing the options of debt consolidation versus credit card payment. Debt consolidation is simply the act of having a new lender pay off all of your current credit card lenders and at the same time extending you a new loan at (hopefully) a lower average interest rate.
Meanwhile, the other main option you have is just to stick it out and try to pay off your credit cards by making your monthly payments. But, how do you know which option is best?
When to Choose Debt Consolidation
You should choose the debt consolidation route if you:
1. can find a lender who will extend you a loan with a better interest rate than your current average rate.
2. have the willpower NOT to open more credit cards and start running up charges on those cards – which would put you into a worse spot than you are in now.
When to Opt to Pay Off Your Credit Cards Monthly
You should choose the monthly credit card payments route if you:
1. have an average interest rate for all of your credit cards is below 10-12%. Of course, any interest is bad interest (so to speak), but if the interest rates on your credit cards now averages at under 10-12%, you may be better off not consolidating.
2. currently have the ability to pay at least 20% more than the minimum required payment each month. If you cannot do this, you will likely never be in a position to pay off your debt this way.
Either option has its advantages and pitfalls. Be sure you are honest with yourself about your ability to select and then stick with whichever option you choose.